Oil slips towards $50

Oil fell toward $50 a barrel on Tuesday, paring early gains after European equities turned lower, as investors continued to track share movements to try and gauge the strength of the global economy.

U.S. light crude for May delivery was down 86 cents at $50.19 a barrel by 1125 GMT (7:25 a.m. EDT) , having settled $1.46 lower on Monday as Wall Street tumbled.

London Brent crude fell 44 cents to $51.80.

Crude oil prices have been closely tracking the fortunes of broader markets as investors look for clues as to when oil demand might rebound.

Everybody realizes that demand is very bad. Inventories are really high and fundamentals are not very good, said Tony Nunan, risk manager at Mitsubishi Corp.

Demand goes hand in hand with the economy these days, so people are trading on the back of the global economy.

European shares opened higher but quickly turned lower on Tuesday, falling for the third consecutive session as figures showed the eurozone shrank by more than previously thought in the fourth quarter.

The global recession has cut oil demand around the world, with consumption expected to be curbed for the first time since the early 1980s.

The resumption of oil flow through the Kirkuk-Ceyhan oil pipeline also pressured prices.

Oil flow through the pipeline, which carries more than a fifth of Iraqi crude to the Turkish Mediterranean coast had resumed on Monday, a source at the Turkish pipeline operator told Reuters.

Strength in the dollar also weighed, as commodities prices in the U.S. currency become more expensive for overseas investors.

U.S. INVENTORIES

Little upside is expected from weekly U.S. inventories data due on Tuesday and Wednesday, with oil analysts predicting yet another increase in crude stocks because of high import levels and weak demand from domestic refiners.

A preliminary forecast of seven analysts called for a 2.1 million barrel rise in crude stocks, which are already running at a 16-year high, according to the U.S. Energy Information Administration (EIA).

Investors are eyeing a potential build in U.S. crude stocks, which should keep prices under pressure, said Andrey Kryuchenkov, vice president commodities at VTB Capital in London.

After prices rose over the past couple of weeks the demand situation is again encouraging a little profit-taking.

Gasoline stocks could fall by 1 million barrels, and distillates by 0.4 million barrels, mainly due to lower refinery production. Demand may have dipped too, analysts added.

The American Petroleum Institute will release its report on Tuesday at 2030 GMT (4:30 p.m. EDT), while the EIA -- whose data is generally seen as more comprehensive -- releases its report at 1530 GMT (11:30 a.m. EDT) on Wednesday.

Oil prices have gained roughly 40 percent since mid-February as equities markets rose and OPEC producers cut output, though oil's gains have been limited by continued weak global demand and rising inventory levels.

(Additional reporting by Maryelle Demongeot in Singapore; editing by James Jukwey)